India’s Property Recovery to Drive Stocks, BofA Merrill Says

Dec. 11 (Bloomberg) -- A recovery in Indian commercial property and rising home prices in Mumbai and New Delhi will boost asset values and drive real estate stocks next year, BofA Merrill Lynch Global Research said.

The brokerage was reinstating coverage of the nation’s property industry with a “bullish” stance and has a “buy” recommendation for Indiabulls Real Estate Ltd., DLF Ltd. and Housing Development & Infrastructure Ltd., BofA Merrill Lynch analysts Unmesh Sharma and Gagan Agarwal said in report today. They have a “neutral” recommendation for Unitech Ltd., the second-biggest developer.

“Real estate stocks have experienced a sharp rally since March 2009 on the back of capital raising and increased sales volume in the residential segment,” the analysts wrote. “We expect commercial property and pricing to surprise positively, leading to the next round of significant net asset value upgrades.”

Housing Development, the nation’s third-largest developer by value, has more than doubled in Mumbai trading this year, leading gains among the largest property stocks. The benchmark Sensitive Index, also known as the Sensex, has risen 80 percent, poised for its best annual performance since 1991.

‘Overly Concerned’

Real-estate sector leads in black money, finds FinMin

The investigation department of the ministry of finance has unearthed black money to the tune of over Rs 4,500 crore during the last financial year, with the quantum of such unaccounted money highest in the real estate sector at around Rs 2,000 crore.

This was followed by the manufacturing sector, which saw a growth of 215.15 per cent in black money during 2008-09, a source from the intelligence department of the ministry told The Indian Express.

The source said the investigation directorate, which constantly keeps track of the growth of black money in different sectors and accordingly shifts its focus, conducted the highest number of search operations — 123 — in the real estate sector. It also conducted searches in sectors like manufacturing (79), jewellery (33), professional, financial, and education.

How India Avoided a Crisis

“In India, we never had anything close to the subprime loan,” said Chandra Kochhar, the chief financial officer of India’s largest private bank, Icici. (A few days after I spoke to her, Ms. Kochhar was named the bank’s new chief executive, in a move that had long been anticipated.) “All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system. So a lot of the temptations didn’t exist.”

And when I went to see Deepak Parekh, the chief executive of HDFC, which was founded in 1977 as the country’s first specialized mortgage bank, practically the first words out of his mouth were these: “We don’t do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don’t make those kinds of loans. Our nonperforming loans are less than 1 percent.”

Real Estate Bank India (REBI), is planning to set up 3,000 franchisees across the country

Across the eastern region, REBI would open 200 stores, said Hemant Sikaria, regional head of REBI, on the occasion of launch of two-day expo, Franchise Expo 2008-09.

This would be a platform for entrepreneurs and business houses to explore business opportunities in real estate.

REBI was present in places like Bangalore, Bhubaneshwar, Chennai, Coimbatore, Delhi, Hyderabad, Jabalpur, Jaipur, Lucknow, Ludhiana, Mysore, Surat, Trichy, Truvandrum and Varanasi.

“India’s realty segment is the only industry with a track record of 30-35 per cent growth per year in terms of investment. With the realty sector booming in east, we are confident that to be able to provide solutions to all real estate requirements of the people here,” Sikaria said.